Regardless of the size of your business, having unpaid invoices can be frustrating. Unpaid invoices can pose a problem for the cash flow of your business and make it difficult to meet your business needs or take advantages of new opportunities.
Collecting unpaid invoices is a top priority for any business. Today we are going to discuss some ways to deal with them, so your cash flow is not affected.
Tips for Collecting Unpaid Invoices
Contact slow-paying customers
It may be tricky to get in touch with a customer who has an unpaid invoice because you don’t want to be too demanding but it is something that you need to have to keep your business running.
It is important to keep track of when the invoice was issued to see how long it has been since they have paid. Do not jump to conclusions and come off as threatening. Jumping to conclusions can be a mistake especially if the fault for the unpaid invoice was on your end. If it is way overdue, contact the customer and request an update on the payment. Be sure to be polite when you follow up but also firm and see if they can provide you with an explanation on why it is late.
It is possible that a customer simply forgot so sending a polite note through email or a “just checking in” phone call will get you the answer you are looking for.
Follow up again
If the friendly reminder does not work, submit a statement later and attach it to an email kindly reminding the client that the payment is now due. Ensure the tone is warm and friendly yet firm so you can get paid. Otherwise, being unprofessional can hurt your business in the long run. If the contract states there is a penalty such as a late fee or an interest charge, make sure the client knows that is going to begin accumulating.
Before getting involved with a collections agency to get paid, there are a few things you can do first.
- Contact someone else at the office.
- Review your contract with the customer. Get in touch with an arbitration board to find out what you need to do to file a case.
- You can use a mediation service if your customer is local. A mediator can help resolve the dispute between the two parties.
- Consider offering a short payment plan if they client wants to pay but has cash flow problems.
- Offer to settle for less than owed which is not ideal but better than not receiving any payment at all.
- If you met your customer through an ad online or a freelance website, contact the website and report the problem. You may not get your money back, but they will intervene.
- Go to a small claims court. If the amount you are owed is less than your state’s small claims court max limit, you can represent yourself in the court and do not need a lawyer.
- Go to regular court if the amount you are owed exceeds the threshold for small claims court in your state and file a lawsuit.
When you have unpaid invoices, you need to think about how you are going to get the cash to keep your business running smoothly. Seeking business financing may be the solution when clients are not making their payments. Some of the loan options you can choose from are term loans, merchant cash advances, and invoice financing. To choose the right type of financing, you will need to determine what your cash flow situation looks like and how much money you will need to borrow.
Avoid Payment Problems
Although you cannot completely rule out customers not paying on time, there are some steps you can take to limit the problem.
- Take some time to research a customer before accepting work. From checking their social media pages, to searching county records to learn if the customer has faced any lawsuits, finding a bit of background information about the person will help you limit some of the challenges.
- Create a contract and include clear terms regarding payment.
- Charge a late payment fee to your contract to entice the customer to pay on time.
- If you offer multiple payment options, customers will be more willing to pay if it is more convenient for them. Some options that will make it seamless for them is to accept PayPal, direct deposit, or credit cards.
- You can ask for a deposit when working with a new client and ask for it upfront before doing any work.
- You can keep records for reference in case any disputes arise with you and your customer.
There are many reasons to why a client may be late in paying you, so it is important to not jump to conclusions and be polite when following up. Make sure that any contracts moving forward outline the exact terms on when the payment is expected and what the penalties are for paying late to avoid any payment problems in the future.